Today (14 February 2021) is a special day for many families in Singapore – not only is it the third day of Chinese New Year, but coincidentally, it is Valentine’s Day as well. So, if you have not done so already, you should show your spouse, children, parents and other loved ones that you truly love and care for them.
With the long queues and rush to collect new notes, it remains to be seen whether many people here will take to the new form of gifting red packets via mobile payments, which has become quite common in China. While the e-gifting transaction volume will certainly go up from last year, chances are many practical Singaporeans will still be slow to adopt the practice this Chinese New Year.
For instance, if you plan to give a substantial sum to your loved ones, sending it via mobile phone does not have the same impact as handing over a red packet stuffed with crisp new notes. Those who receive “thick” packets will know of your generosity even without checking.
Also, how do you send such egifts to children unless you know their mobile phone numbers? And even if you do, you will likely feel pressured to give more. Two $2 notes in a red packet will not cause anyone to bat an eyelid, but the same figure in an e-hongbao that comes with your name can make one look "cheap".
As I often share tips about money and what you can do to ensure that you are not short of it, here are some financial planning moves that you should consider to show your loved ones that your actions speak louder than sweet nothings.
E-hongbao to give your kids a head start
Even if you are not into e-hongbao, all parents should consider giving this e-gift to their children: a lump sum annual contribution to their Central Provident Fund (CPF) accounts. It is uncommon to associate children with CPF because most people link the national retirement scheme to employment income.
But children get their own CPF accounts the moment they receive special grants from the Government at birth. Many parents are unaware of this unless they make voluntary contributions for them. There are two ways to contribute:
Since children up to the age of 10 mostly depend on their parents for all expenses, you can give them a token hongbao, but also make a $1,000 direct online top-up to their Special Account (SA) via the myCPF portal. Due to the SA’s annual interest rate of 4 per cent, if you do this every year from when they are born until they are 10, they will have an extra $73,000 by the time they are 55. If you double the contribution, they will get more than $146,000.
Before you dismiss the idea of locking up funds for 45 years as crazy, ask yourself this – how else can you get this kind of risk-free return for just $10,000 to $20,000 in cash? Now that you are an adult, do you not wish that your parents had done the same, or given even more, for you? If you give such a head start in life to your children, they may well become a new generation of CPF members who can boast they have exceptionally high CPF savings of between $500,000 and $1 million when they are in their 50s.
The savings in CPF for your children are not only risk-free, but you can also monitor the fund as often as you want so that you can adjust your contributions accordingly.
You will also be able to share in the fruits of such investment if you have children in your 20s or 30s, as by the time the funds are available for withdrawal, you will be in your 70s or 80s, and your children will have extra money to take care of you.
EDUCATION OR HOUSING FUND
If you feel that a 45-year wait is too long, you can use the CPF as a riskfree savings plan to slowly grow an education or housing fund for your children. Using that same $1,000 annual gift, you can make a voluntary contribution to your children’s CPF accounts – $622 of that will go to the Ordinary Account (OA), $162 to the SA and $216 to the MediSave Account. If you do this until they are 10 years old, they will have more than $9,000 in the OA by the time they are 20. Funds in OA can be used to pay for tertiary education and property here.
So, if you are serious about wanting to build a decent education fund, make a $500 monthly contribution – or $6,000 a year – until your child is 20. By then, he would have more than $100,000 in his OA. Of course, there are some financial products in the market that claim to provide high returns for parents keen to save for their children’s education. But such returns are not guaranteed, and you would do well to have a backup plan if they fall below your expectations. The savings in CPF for your children are not only risk-free, but you can also monitor the fund as often as you want so that you can adjust your contributuions accordingly.
If your children are smart enough to earn scholarships, they will welcome the extra cash in their OA as it will help pay for their first property later.
Extra hongbao for your parents
It is sobering to note that about 40 per cent of CPF members who turned 55 in 2019 did not even have enough money in their CPF to meet the lowest Basic Retirement Sum (BRS), which was $88,000 at the time. It is fair to note that many of today’s seniors probably do not get the monthly BRS payouts of about $700.
If your parents fall into such a category, you can boost their retirement savings by contributing to their Retirement Accounts. The earlier you do this, the more payouts they will get – up to 90 if they are under the old scheme and for as long as they live under CPF Life. You cannot achieve this kind of payout with the same amount of your own cash savings, as CPF interest rates are higher.
Note that giving this kind of hongbao to your parents allows you to receive your own hongbao from the taxman – contributions of up to $7,000 for your relatives’ retirement funds are entitled to tax relief.
Time to treat wives as equals
It is a fact that more women are less financially independent than men, especially if they have given up their careers to care for their families. So, to all men whose wives are housewives or earn less than them, it is time to show your true love, not by buying them flowers or gifts, but by making them your equal in financial planning.
For a start, treat her CPF accounts as if they are yours and start contributing there as well, since she is not working.
- Start with her SA. You can top up to the prevailing Full Retirement Sum, which is $186,000 this year.
- After you hit the maximum, you can still make voluntary annual contributions of up to $37,740, which will go to all three of her CPF accounts.
It is in the interest of all couples to jointly reach the highest tier of the Enhanced Retirement Sum, which is $279,000 this year, so that they stand a chance of receiving a total monthly payout of more than $4,500 for life from the age of 65. This is akin to having rental income for life without the hassle and burden of upkeeping another property.
Finally, make sure you let her have half of all your cash as well. To avoid discussing inauspicious things during Chinese New Year, it is sufficient to note that in the eyes of the law, she actually owns half your assets anyway. So why not just surrender to her what is legally hers and earn a big kiss for being the world’s best husband.
Source: This article first appeared in The Sunday Times © Singapore Press Holdings Limited. Permission required for reproduction.